MamaMancini’s Holdings, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended January 31, 2019. This is an annual report; separate fourth-quarter results are not provided in the filing text. The company manufactures and distributes prepared specialty foods, principally meatballs and sauces, and sells through retail, food distributors and QVC.
Financial performance
| Metric | FY ended Jan. 31, 2019 | FY ended Jan. 31, 2018 |
|---|---|---|
| Net sales, after slotting fees and discounts | $28.52 million | $27.54 million |
| Gross profit / gross margin | $9.99 million / 35% | $9.26 million / 34% |
| Operating income | $1.57 million | $1.06 million |
| Net income | $550,048 | $319,740 |
| Net income available to common shareholders | $550,048 | $228,175 |
| Basic and diluted EPS | $0.02 | $0.01 |
| Cash from operating activities | $1.44 million | $1.32 million |
| Capital expenditures | $1.03 million | $1.47 million |
Sales rose approximately 4%. Management attributed improved gross margin to manufacturing efficiencies and cost control, despite approximately $300,000 of additional depreciation from plant additions. Operating expenses increased 3%, including higher payroll and freight costs. Other expense rose to $1.02 million, including $881,702 interest expense and $133,314 debt-discount amortization.
Liquidity, debt and balance sheet
- Cash was $609,409 at year-end. Current assets were $4.86 million and current liabilities were $3.62 million, resulting in positive working capital of $1.24 million, versus a $2.90 million deficit a year earlier. The improvement primarily reflected a reduction in current debt after refinancing.
- Total liabilities were $8.95 million, compared with $9.21 million a year earlier; stockholders’ deficit was $1.18 million. Year-end debt and capital-lease maturities totaled approximately $5.97 million, before the stated debt discounts.
- In January 2019, the company refinanced prior borrowing with M&T Bank facilities: a $3.5 million revolving line and a $2.5 million five-year term loan, both priced at LIBOR plus four percentage points. At year-end, the line balance was $2.61 million and the term-loan balance was $2.50 million. The facilities are secured by company assets, contain financial covenants, and include a limited CEO guarantee.
- Management estimated an initial rate of approximately 6.5%, compared with more than 12.5% on replaced financing, and estimated monthly savings of about $33,000 in interest and fees. Refinancing generated a one-time $121,500 termination charge; $89,000 of new-facility origination fees are amortized over 24 months.
Material changes and outlook
- Cash used in investing was $1.03 million, mainly for machinery, equipment and leasehold improvements related to a plant expansion begun in 2017. Management expects improved capacity and efficiency to support growth and margins.
- Revenue growth reflected new and existing customers and a merchandising event with one customer. The company said it was pursuing more fresh-section placements, retail locations, new products, QVC offerings and sales in food service, convenience stores, export and club-store channels.
- Management believed cash resources would likely be sufficient through fiscal 2020, supported by revenue growth, improved gross margins and expense controls, but cautioned that additional funding may be needed to finance growth and strategic objectives; access to such funding is not assured.
- The company depends heavily on a small customer base: two customers generated approximately 60% of gross sales in FY2019, and three customers represented approximately 76% of gross receivables at year-end.
Risks, contingencies and notable disclosures
- Management concluded disclosure controls and internal control over financial reporting were ineffective and identified material weaknesses, including limited segregation of duties and insufficient controls over information processing. Remediation plans included greater independent-board oversight, documenting procedures and adding accounting staff when resources permit.
- The independent auditor issued an unqualified opinion on the financial statements; it did not audit or opine on internal-control effectiveness.
- Food safety, USDA/FDA requirements, changes to the “all natural” definition, competition, consumer demand and food-cost volatility pose operating risks. The filing reported no material litigation known to the company.
- Approximately 90% of products were produced internally by the wholly owned JEFE subsidiary. The company reported no material ingredient shortages. A related party, World Wide Sales, receives commissions under an informal arrangement; two company directors work for that broker.
- The company had $10.8 million of federal net operating loss carryforwards, subject to possible ownership-change limitations, and maintained a full valuation allowance against deferred tax assets.
- The company adopted ASC 606 in fiscal 2019 with no material financial-statement impact. It expected lease-accounting adoption to materially affect the balance sheet, but not income or cash flows.
Key investor verification points
- Review the M&T credit agreement, borrowing-base limits, covenants, maturity schedule and subsequent compliance; verify the actual interest savings against management’s estimates.
- Assess customer concentration, renewal and sell-through trends, and the effect of merchandising promotions on net sales and margins.
- Track plant-expansion spending, utilization, depreciation and whether expected operating efficiencies translate into sustained margin improvement.
- Evaluate progress on the disclosed material weaknesses and whether added accounting staff and control procedures were implemented and tested.
- Reconcile debt balances and upcoming repayments, related-party obligations, and potential dilution from outstanding warrants and options.